Markets for Rhetorical Services

Daniel Barron (Northwestern)
Michael Powell (Northwestern)

Abstract: This paper studies markets for advertising and other “rhetorical services.” A monopolist prices a service that a sender can purchase and which changes the distribution over signals observed by a decision-maker. We show that the decision-maker's beliefs about purchase behavior influence the value of these services. This feedback from beliefs to demand determines pricing and can lead to unusual market features, including upward-sloping equilibrium demand. We discuss welfare and regulation in this market and characterize the monopolist's optimal product design. To serve as a foundation for this analysis, we develop a parsimonious model of rhetorical ability.